With the CFPB’s Future in Doubt, What Happens Next?

Consumer financial protection is one of those phrases, like voting rights and universal health care, that’s far more controversial than it sounds. In the dozen years since Congress created the Consumer Financial Protection Bureau, it has proved to be a partisan minefield, relentlessly contested by lawmakers, businesses and the courts.

On Oct. 3 the Supreme Court will hear a challenge to the legality of the bureau’s funding. Chances are high that most of the justices will agree with the Fifth Circuit Court of Appeal’s ruling that the CFPB’s budget design is unconstitutional because it circumvents the congressional appropriations process.

Legally, that may well be the correct outcome. Practically, it could invalidate a ream of effective regulations and eradicate years of progress in cleaning up the shadiest areas of finance. Congress should prepare for what comes next.

The CFPB was established in 2011, a key part of the Dodd-Frank law. Before it was created, seven different agencies had some responsibility for helping to defend consumers against harmful, deceptive or fraudulent practices. But all had other, more pressing considerations — the Federal Reserve is always going to emphasize monetary policy over consumer protection, for instance. After the financial crisis, placing those duties under one roof had a certain logic.

Wary of the financial industry’s influence in Washington, however, the bureau’s advocates tried to maximize its independence from both the executive branch and the legislature. Instead of relying on Congress, it would receive an annual budget from the Fed. And unlike the Securities and Exchange Commission or the Federal Deposit Insurance Corp., each led by five political appointees, it would have a single director — named by the president to a five-year term — who could only be fired for “inefficiency, neglect of duty, or malfeasance in office.”

There’s no denying that the result was an unusually effective regulator. Over a little more than a decade, the bureau has levied more than $4 billion in civil penalties and returned more than $17.5 billion to hard-done-by Americans. It has shed sunlight on financial misconduct; established tougher rules for payday lending, debt collection, and credit reporting; required banks to speak plainly about mortgages, overdraft rules, and more; and demanded transparency from companies across the consumer-finance industry.

From the start, though, the CFPB’s power and independence were hard to reconcile with the US system of checks and balances. To industry executives, the bureau was an out-of-control police force with no accountability. Lawsuit after lawsuit challenged its legitimacy. Judges were often sympathetic. “In terms of unilateral power, the Director of the CFPB is the single most powerful official in the entire US Government, other than the President,” wrote then-Judge Brett Kavanaugh. “The concentration of massive, unchecked power in a single Director marks a dramatic departure from settled historical practice and makes the CFPB unique among independent agencies.” In 2020, the Supreme Court struck down a provision that protected the bureau’s director from being fired.

Now two trade groups that represent payday lenders have brought a lawsuit challenging the CFPB’s independent funding stream, among other things. The Fifth Circuit’s ruling on the budget design was unequivocal. “Congress’s decision to abdicate its appropriations power under the Constitution, i.e., to cede its power of the purse to the Bureau, violates the Constitution’s structural separation of powers.”

If lawmakers wish to preserve the salutary functions of the CFPB, they should pass conditional appropriations that would replace the bureau’s current funding system if the Supreme Court upholds that decision. There’s no question that the appropriations process is a challenging and frustrating gauntlet. The process often seems to be broken. But fights over spending priorities are a feature, not a bug, of democracy.

Americans have had 12 years to see the benefits of a well-funded Consumer Financial Protection Bureau; they should get to decide if they want their tax money to support it.

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